Just 30 per cent of pension schemes regularly monitor individual fund performance as experienced by members, according to new research.

Defined contribution schemes must start targeting retirement outcomes over outperforming indices, Aon said in response to its survey of 109 UK DC schemes.

In contrast, 90 per cent of schemes are using an index-based perspective for monitoring performance against market indices and benchmarks.

Even fewer schemes — 15 per cent of respondents — monitored performance in the context of how it delivered objectives tailored for individual members.

Aon said that investment approaches need to be updated.

Commenting on its findings, Chris Inman, head of DC investment advisory at Aon, said clarity of direction was needed in the space to help avoid member outcomes being overlooked.

“While the concept of a good outcome is generally recognised across the pensions industry, no clear definition of it currently exists and which can therefore be incorporated into investment strategies,” Inman said.

“With the diverse nature of DC scheme members only increasing, greater clarity is needed to aid targeting a sustainable level of retirement saving.”

According to Inman, this clarity will include setting specific targets for the aggregate default investment option.

He said this could help schemes see the bigger picture and understand whether their default investment is delivering a good outcome for members.

“This will be increasingly important amid the uncertainty in today’s investment markets,” Inman added.

Elsewhere, adoption of environmental, social and governance factors is still lagging in the DC scheme market.

Only 42 per cent of respondents assessed their investment options against ESG criteria. This relates to four in 10 schemes, which is an improvement from the one in 10 in 2020.

Despite this “real progress”, Jo Sharples, chief investment officer for Aon’s DC solutions, has called for greater structure around this to help drive focus for greater ESG adoption.

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